February 2012 -- Monthly Review -- Five years after the Great Financial Crisis of 2007–09 began there is still no sign of a full recovery of the world economy. Consequently, concern has increasingly shifted from financial crisis and recession to slow growth or stagnation, causing some to dub the current era the Great Stagnation.1 Stagnation and financial crisis are now seen as feeding into one another. Thus IMF Managing Director Christine Lagarde declared in a speech in China on November 9, 2011, in which she called for the rebalancing of the Chinese economy:
The global economy has entered a dangerous and uncertain phase. Adverse feedback loops between the real economy and the financial sector have become prominent. And unemployment in the advanced economies remains unacceptably high. If we do not act, and act together, we could enter a downward spiral of uncertainty, financial instability, and a collapse in global demand. Ultimately, we could face a lost decade of low growth and high unemployment.2
To be sure, a few emerging economies have seemingly bucked the general trend, continuing to grow rapidly—most notably China, now the world’s second largest economy after the United States. Yet, as Lagarde warned her Chinese listeners, “Asia is not immune” to the general economic slowdown, “emerging Asia is also vulnerable to developments in the financial sector.” So sharp were the IMF’s warnings, dovetailing with widespread fears of a sharp Chinese economic slowdown, that Lagarde in late November was forced to reassure world business, declaring that stagnation was probably not imminent in China (the Bloomberg.com headline ran: “IMF Sees Chinese Economy Avoiding Stagnation.”)3
Nevertheless, concerns regarding the future of the Chinese economy are now widespread. Few informed economic observers believe that the current Chinese growth trend is sustainable; indeed, many believe that if China does not sharply alter course, it is headed toward a severe crisis. Stephen Roach, non-executive chairman of Morgan Stanley Asia, argues that China’s export-led economy has recently experienced two warning shots: first the decline beginning in the United States following the Great Financial Crisis, and now the continuing problems in Europe. “China’s two largest export markets are in serious trouble and can no longer be counted on as reliable, sustainable sources of external demand.”4
In order to avoid looming disaster, the current economic consensus suggests that the Chinese economy needs to rebalance its shares of net exports, investment, and consumption in GDP—moving away from an economy that is dangerously over-reliant on investment and exports, characterized by an extreme deficiency in consumer demand, and increasingly showing signs of a real estate/financial bubble. But the very idea of such a fundamental rebalancing—on the gigantic scale required—raises the question of contradictions that lie at the center of the whole low-wage accumulation model that has come to characterize contemporary Chinese capitalism, along with its roots in the current urban-rural divide.
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